Next Generation Supply Management Defined

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Daily Archives: May 26, 2010

An article in the special report on innovation and emerging markets in the April 17th edition of The Economist on the power to disrupt made some very good points on why things will move faster and further this time with emerging markets that deserve to be repeated and discussed because they will, ultimately, disrupt your home markets and the supply chains that serve them.

Senior Management Talent Markets are Liquid

Great management talent can not come from anywhere, but can go to anywhere. And chances are that where ever they go, they’ll have access to highly developed capital markets for merger, acquisition, and expansion.

Emerging Markets are Already Larger Than You Think

The emerging-market export machine has engines in almost every industry. ArcelorMittal in Luxembourg is the world’s biggest steel company, Infosys and TCS in India are among the world’s biggest IT companies, Haier in China is the fourth largest manufacturer of home appliances, and ZTE in China is a top-ten mobile handset manufacturer expected to soon be a top-five.

Emerging Markets Offer Volume

Due to the slim profit margins in emerging markets, emerging market companies are obsessed with volume and ways to expand their footprint.

Emerging Markets are Sources of Growth and Innovation

No longer the sweatshops of the world, emerging markets often offer more potential customers and innovation opportunities than home markets.

If you don’t keep a watchful eye out, the end result could be that your top talent defects to a competitor in an emerging market, which aggressively goes after your market share and wins because the innovative new offerings, which can produced more economically using frugal processes and economies of scale, cost less, which will become of increasingly greater importance to the cash-strapped developed economies suffering from stagnating growth.

To maintain your lead, you’ll have to recruit senior talent from emerging talents to revolutionize your supply chain, merge with emerging market companies in local markets, find ways to support even larger volumes at lower costs, and look for innovation the last place you’d expect it.

The reality is that, no matter how much you try, only so much innovation and flexibility is going to originate from within your four walls. Most of the innovation, should you be ready to accept it, is going to come from your partners, and your supply base in particular. Furthermore, an A+ supply base can revolutionize the way you do business and significantly increase your profit potential. Consider the case of Zara, as discussed by Martin Hogel. Zara sells 85 per cent of its store stocks on initial price and the average in the clothing retail industry is 60-70 per cent. Zara’s on-target price:sales ratio is clearly an effect of a well-crafted and executed supply chain strategy … a strategy that is significantly increasing it’s revenue, and profit, by enabling it to outsell it’s competitors on an additional 15% to 25% of its product offerings.

While the obsessive customer focus discussed in the last post is critical, as Austen Bushrod notes, you need to get the supply base involved in that too because you truly need to have every stage of your supply chain involved to maximize your success. Even if it means, as Michael Walsh points out, that you have to nurture the supply base where they are struggling. After all, if you help them, they’ll remember that in your times of distress and help you. While there may be a few sociopaths in the business world, most people in business want to do what’s right, and that generally means helping you when you help them.

So how do you get there? As Guy Allen noted, you start with a transparency of information flow, then you, as noted by Colin Davis, cooperate, and finally, when it comes time for negotiations, leave the gun, take the cannoli. And before you’re done, you should, as Martin Hogel puts it, have a really good understanding of the structure of your supply base: which are strategic suppliers, which are, let’s call them preferred suppliers, and which are commodity suppliers or vendors. Then you can work with your strategic and preferred suppliers to come up with products and services that are truly value add to the customer, which, as per our last post, should be your obsession.

In our next, and final post, we’ll talk about how the final price of a flexible supply chain is eternal vigilance.